The decision sent shares in Sanofi down around 2 percent by 1300 GMT, while Zealand Pharma, its smaller Danish partner on the drug, dropped 16 percent.

Sanofi said it would resubmit its application to the U.S. Food and Drug Administration in 2015, after completion an ongoing cardiovascular patient study, and said the withdrawal was "not related to safety issues or deficiencies in the new drug application."

Sanofi argued that revealing interim data from the cardiovascular trial to the FDA before it was completed could potentially influence patients and doctors' response and affect the integrity of the study, and that it was therefore wiser to wait for its full results to submit a new drug application.

Lixisenatide is part of a new class of diabetes treatments called GLP-1 analogues that prompt the body to release insulin when a diabetic's blood sugar level climbs too high.

It has already been approved for sale in Europe under the brand name Lyxumia and is one of the new products Sanofi is betting on to restore growth after losing several blockbusters to generic competition.

Sanofi is the world's fourth-largest pharmaceutical company by prescription drug sales and the second-biggest player in the $43 billion diabetes market.

Lyxumia competes with other GLP-1 drugs as Victoza, from Novo Nordisk, and Byetta and Bydureon, from Bristol-Myers Squibb and AstraZeneca.

Sanofi said it expected to have the full results of its evaluation of lixisenatide in acute coronary syndrome, which is focused on patients with high cardiovascular risk, in about 15 months. Market analysts had expected the FDA to rule on lixisenatide by the end of the year.

"MINOR NEGATIVE"

"The net effect is that U.S. filing will be delayed to 2015, resulting in a 2-3 year delay to launch (likely to 2016), assuming nothing untoward emerges in the long-term cardiovascular outcome trial," Deutsche Bank analysts wrote in a note.

They had estimated the drug to bring 300 million euros ($399 million) of sales in the United States in 2016, and said they would now have to push back this forecast by a couple of years.

"We view this news as only a minor negative," they noted however, highlighting that Sanofi was sticking to its development plans for a combination of lixisenatide with its existing insulin drug Lantus that could reap higher sales.

The combination, a pen-shaped device known as LixiLan, remains on schedule to enter into final Phase III clinical testing in the first half of 2014, Sanofi said.

Sanofi has previously said that combining Lyxumia with Lantus insulin could help diabetics control blood sugar levels better than each therapy used alone.

After Sanofi's announcement on Thursday, analysts at Swiss-based broker Helvea revised their forecast for U.S. sales of lixisenatide in 2022 to 490 million euros from 830 million, and global sales to 1 billion euros from 1.5 billion.

They said they expected rival Novo Nordisk's Victoza drug to benefit from Sanofi's move.

Drugmakers are competing fiercely in the type 2 diabetes market as the number of people with the disease, which is linked to obesity, continues to grow rapidly - including in emerging markets where middle classes are switching to a Western diet.

An estimated 371 million people worldwide are living with diabetes, with China now topping the list, according to the International Diabetes Federation. It predicts as many as 552 million may have the disease by 2030. (Editing by Jane Merriman and Ben Hirschler)